Three Common Inheritance Taxes to Know

While it’s never the first thing anyone wants to be thinking about after the death of a loved one, wills and estate planning are important areas to think about during these times. One of the biggest areas here is taxes, which will have implications for almost every type of inheritance possible.

At MDF Estate Planning, we’re here to help. Let’s go over the three most important and common taxes when it comes to inheritance estates, and what you need to know about them.

Estate Tax

Estate tax is only a consideration for people who are receiving a large inheritance from a departed loved one. Basically, any estate worth less than $5.49 million will owe no estate tax – that tax falls on the estate, not any beneficiaries, meaning that even if it were due, the trustee would pay it first and then distribute assets to the beneficiaries after.

The trust might pay first and then distribute what’s left. In other cases, the trust might pay it, then deduct tax payments from each.

Income Tax

Beneficiaries don’t have to pay any tax on distributions from the principal amount of a trust, but they will have to pay it on distributions from the trust’s income. This is to any extent that there are distributions to the beneficiaries or in the final year of a trust. Income tax rates are much higher for trusts than for individuals, which is why it’s often best to distribute all the trust’s income to each beneficiary, so lower tax rates can be achieved.

Capital Gains Taxes

These are taxes that cover any increase in the value of the property you’ve inherited from a departed loved one. Say a loved one left you stock in a company that has gone up significantly since their passing, for instance – in these cases, you’d have to pay taxes on any gains made here since the time of death of the person who passed them to you.

For more on the basic taxes associated with inheritance estates, or to learn more about living trusts or any element of our estate planning, speak to the professionals at MDF Estate Planning today.